Were charges for computer-generated illustrations delivered solely by modem subject to California sales tax?

Plain-English summary

A business created computer-generated illustrations and delivered them to customers by modem without supplying disks, storage media, or any other tangible personal property.

Applying Regulation 1502(f)(1)(D), tax counsel concluded that the modem-only transfer was not a sale of tangible personal property. Sales tax therefore did not apply to the illustration receipts on those facts.

Citations and references

• California Sales and Use Tax Regulation 1502(f)(1)(D) (as cited)

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/120-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/120-0662.pdf

Original ruling text

120.0662

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

JOHAN KLEHS
First District, Hayward

LEGAL DIVISION (MIC:82)
450 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0082)
Telephone: (916) 324-2637
FAX: (916) 323-3387

DEAN ANDAL
Second District, Stockton
ERNEST J. DRONENBURG, JR.
Third District, San Diego

April 18, 1996

KATHLEEN CONNELL
Controller, Sacramento

Ms. T--- S--XX --- ---.
--- ---, CA XXXXX
Re:

BRAD SHERMAN
Fourth District, Los Angeles

────────
E. L. Sorensen, Jr.
Executive Director

Account No. SR -- XX-XXXXXX

Dear Ms. S---:
This is in response to your letter dated April 3, 1996 regarding the application of tax on the transfer of computer generated illustrations. You state that your business creates these illustrations and transfers them to its customers via computer modem. We understand that you do not provide your customers with any tangible personal property (such as computer disks or other storage media) as part of its transfer of these illustrations. You ask whether tax applies to the transfer of these illustrations. Discussion Regulation 1502(f)(1)(D) provides that tax does not apply to the sale or lease of software that is transferred by remote telecommunications (e.g., modem or e-mail) where the purchaser does not obtain possession of any tangible personal property such as storage media in the transaction. In this type of situation, we do not regard the transfer of the software as the sale of tangible personal property inside this state. Since your company only transfers its illustrations by computer modem and does not provide its customers with any tangible personal property, tax does not apply to the gross receipts from the sale of its’ computer generated illustrations. If you have any further questions, please write again. Sincerely,

Warren L. Astleford
Staff Counsel
WLA:rz
cc:

--- District Administrator - (--)